ZURICH (Bloomberg) — Scor SA, France’s largest reinsurer, offered to buy Converium Holding AG for 3.1 billion Swiss francs ($2.5 billion) in a deal that would increase premium income by about 50 percent. Converium rejected the approach.Scor bought 32.9 percent of Converium from investors including Swiss financier Martin Ebner for the equivalent of 21.1 francs a share, the Paris-based company said yesterday. That’s 12 percent higher than Converium’s February 16 closing share price of 18.8 francs.

“This deal makes sense as neither of the two companies had the critical size needed in this business,” said Pierre Flabbee, an analyst at Kepler Equities in Paris. “This will create a bigger, more solid reinsurance company, which will be able to have better ratings.”

Chief executive officer Denis Kessler in November said Scor plans to “expand by acquisitions” after last year buying German rival Revios Ruckversicherung AG for $794 million to create the fourth-largest life reinsurer. Converium is losing business as it waits for the US Securities and Exchange Commission to settle a probe, a requirement for it to regain the higher credit rating needed to win new contracts. Shares of Scor fell [EURO]1.54, or 7.3 percent, to [EURO]19.57, the biggest drop since August 2004. Converium surged 2.55 francs, or 14 percent, to 21.35 Swiss francs in Zurich, the most since December 2001. They’ve gained 52 percent in the past six months. Reinsurers help primary insurers such as Allianz SE shoulder risks for clients.

Ebner Sells

Patinex AG, Ebner’s investment company, sold “close to” 20 percent of Converium in shares and options, Patinex spokesman Ralph Stadler said in a telephone interview.

Swiss law requires investors to make a formal takeover offer to all shareholders if they own more than a third of a company’s stock. “Scor has approached Converium and it hasn’t made a bid,” said Paris-based Andrew Dewar, a spokesman for Brunswick Group, which is advising Scor.

Scor’s approach follows last year’s acquisition by Swiss Re of General Electric Co.’s Insurance Solution unit for $7.4 billion. Axa SA, Europe’s second-largest insurer, in June agreed to sell its Axa Re reinsurance unit to a group of investors.

Converium, which last week forecast gross written premiums of as much as $2.2 billion this year, said it rejected Scor’s offer because it isn’t in the interests of shareholders.

Scor’s approach “fundamentally fails to recognise the value of Converium’s franchise and growth prospects,” Converium said in an e-mailed statement. The Swiss reinsurer said it is being advised by Credit Suisse Group and JPMorgan Chase & Co.

Converium has a price-to-earnings ratio of 23, based on estimated earnings for 2007, more than double Scor’s 10.5, according to Bloomberg data.

Converium, spun off from Zurich Financial Services in 2001, in 2004 reported an unexpected $660 million loss triggered by a reserve shortfall in the US. The shares lost more than half of their value in the three days after the loss was disclosed and are still trading about 30 percent lower.

The loss prompted Standard & Poor’s to cut the reinsurer’s credit rating, meaning it couldn’t write business in countries such as Australia, where regulators prevent insurers from using reinsurers with lower debt quality. S&P has said it will restore Converium’s “A” rating from the current “BBB+” once SEC investigations are settled.

The SEC is investigating whether company officials and others traded on inside information before the reserve increase was announced in July 2004.